FinCEN Order Targets Tax Refund Check Fraud In South Fla.

Jul 13, 2015   
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By Nathan Hale
July 13, 2015

Faced with a surge in tax refund check fraud in South Florida, the Financial Crimes Enforcement Network on Monday issued a geographic targeting order for the region’s check cashers, temporarily enhancing identification requirements for customers to deter and help prosecute these crimes.

The GTO, which takes effect Aug. 3 and will run through Jan. 30, with the possibility of renewal, will affect check cashers in Miami-Dade and Broward counties when cashing federal tax refund checks in excess of $1,000.

The power to issue a geographic targeting order, or GTO, has been in the arsenal of the U.S. Department of the Treasury bureau since 1988 under the Bank Secrecy Act, but it has been used rarely until recently. Only a few have been issued in the last few years, but this is the second for South Florida, with FinCEN also targeting electronics exporters in an April order aimed at curtailing money laundering by prominent drug cartels such as Mexico’s Sinaloa and Los Zetas.

“For South Florida, it’s significant,” said Andrew S. Ittleman, a partner at Fuerst Ittleman David & Joseph PL, whose practice focuses, in part, on anti-money laundering compliance. “Two within several months in the same region, when there have only been a handful in history — it’s a big deal.”

Under the current order, check cashers handling the covered transactions — either U.S. Treasury tax refund checks or third-party checks issued in connection with anticipated tax refunds of more than $1,000 — will have to obtain a copy of the customer’s valid government-issued identification, which must match the name of the check’s original payee; a clear digital photograph taken at the time of the transaction (surveillance video images will not suffice); the customer’s phone number; and the customer’s original thumbprint.

These records must be retained for five years past the last day the order is in effect and made available in a reasonable amount of time to FinCEN or other law enforcement or regulatory agencies.

“Our unique authorities, such as the ability to issue GTOs, enable us to partner with law enforcement in attacking stolen identity tax refund fraud from every angle,” FinCEN Director Jennifer Shasky Calvery said in a statement. “This GTO will help ensure that the perpetrators of these schemes can no longer hide their face while our national treasury is looted and innocent victims spend countless hours and personal expense working with government to reclaim their true identities.”

A typical one of these schemes involves a criminal using stolen identification information to file a fraudulent tax return. The criminal or an accomplice then cashes the refund check, usually using fake identification to evade capture when the fraud is discovered, according to FinCEN.

“It is a very big issue in South Florida and has been for the last 4 to 5 years,” said Jed Dwyer, a Miami-based partner at Greenberg Traurig LLP and a former federal prosecutor.

“I think that it is a comparatively easy and not very dangerous criminal endeavor,” he added, noting that authorities have been seeing people who were involved in other criminal activities, such as the drug trade, getting involved in these schemes since they require little more than a stolen social security number.

FinCEN’s announcement stressed that the order does not mean that it has made any finding about any check casher’s knowledge of these schemes, but it also made clear that failure to comply could carry consequences, including civil or criminal penalties without limitation.

The bureau, with help from the Internal Revenue Service and the U.S. Attorney’s Office for the Southern District of Florida, set the order to coincide with a time of year outside of tax-filing season, when authorities are concerned criminals are trying to catch financial institutions off guard.

Describing it as a period “in which the proportion of fraudulent tax refund transactions is high, but the total volume of transactions is relatively low,” FinCEN said this should help minimize the burden on affected cash checkers while snaring higher-risk transactions.

The burden will still be significant, Ittleman said, opining that the GTO is designed ultimately to eliminate these transactions.

“It is burdensome, it is difficult, it is confusing, and it’s all of those things by design,” he said, adding, “This order is designed to disincentivize check cashers from cashing those type of checks at all.”

Dwyer agreed that the easiest way to comply is to stop cashing tax refund checks over $1,000, but he said he thinks the requirements to maintain these additional records — while likely the biggest burden — will also help authorities address a big challenge in gathering evidence for trials.

“I think this order is really intended to aid them in their prosecutions,” he said.

Having seen two GTOs issued for South Florida just a few months apart, Dwyer and Ittleman both said more could be in store for the future.

“The only question that remains for me is, is this two of two or two of many many more?” Ittleman said, noting that FinCEN has clearly put Miami under the microscope right now.

Dwyer said the recent orders are the product of a perfect storm of federal law enforcement focusing on this type of fraud, an upswing in their occurrences, and FinCEN on the regulatory side becoming more aggressive and working more closely with the law enforcement side of government.

“They’re realizing that each brings something to the table that they can use,” he said.